A large number of Americans struggle with spiraling student loans. In fact, people who took out student loans in the 90s are still waiting to pay it off despite the fact that these people are now in their late 50s and early 60s. Student loans that started out at $55,000 have risen to almost $300,000 over the decades.
Postponing repayment can dig a deeper hole for borrowers
Over the last ten years, the existing student debt in America has become thrice of what it used to be. Student debt surpasses auto debts and credit card debts and follows housing debt quite closely. The overall student debt in America stands at $1.5 trillion. The director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, Persis Yu, says that student loans keep doubling, tripling, and quadrupling all the time due to the way such loans are developed. The structure of student loans is such that it encourages these loans to increase by large percentages.
Postponing repayments can further add to the student loan dilemma.
Student loan debts affect schools as well. A school where there are too many students who have not cleared their debts within the first three years are not eligible to apply for financial assistance programs. This is why most schools hire a consultant to help the students. But despite the fact that postponement temporarily relieves the situation, it comes back as a borrower's worst nightmare. Postponement simply increases the debt.
For instance, if a person took out a $35,000 in student loan, after graduation, he or she is required to pay back $500 a month. This can be difficult for a fresh graduate, especially those who earn less than $30,000 a year. Pushing loans into forbearance can actually double the debt. A graduate who had to pay $500 will end up paying $700 on their monthly repayment.
The interest will keep accruing and the borrower is left in a much worse situation than he or she was, to begin with.
By the time the borrower lands a well-paying job, the debt is likely to have tripled, making it twice difficult for the borrower to finish off paying the loan.
At times, someone who has been making payments for a long time is told that they are not eligible for student loan forgiveness because they might have taken the wrong type of federal student loan. In such cases, borrowers have to start their payments all over again.